Wyden, Thune Seek Law on Taxation of Digital Downloads

July 30, 2013 | CQ News

By Alan K. Ota, CQ Roll Call

Sens. Ron Wyden of Oregon and John Thune of South Dakota have launched a new push to ban what they call discriminatory taxes on music downloads, electronic newspaper subscriptions and other digital wares on the Internet.

A bipartisan bill (S 1364) sponsored by Wyden would bar discriminatory or duplicative taxes on online downloads of music, text, movies, mobile applications or computing services. Supporters say the proposal is needed to prevent taxes from being levied on downloads of music or on electronic newspaper subscriptions, for example, if no similar taxes are imposed respectively on compact discs or home-delivery subscriptions.

Wyden, a senior tax writer, and Thune, chairman of the Senate Republican Conference, are taking a hard look at potential vehicles for the measure, such as an extension of the so-called Internet tax moratorium (PL 110-108) that bars new assessments on Internet access providers.

The current ban expires on Nov. 1, 2014, and an extension is sure to move in coming months with broad bipartisan support.

The measure is the latest in Congress that seeks to cope with the changes in distribution and sales brought about by commerce on the Internet. The Senate passed a proposal (S 743) this year allowing states to enforce sales taxes on out-of-state online vendors. Wyden opposed that bill and aims to address taxation on goods that are transferred entirely by electronic means.

Wyden said the new bill was “consistent with the principles” of the ban on Internet access taxes. He said his new bill would protect “the digital economy from the unfair application of taxes that would stifle the innovative digital goods and services that are transforming the economy.”

Thune said he hoped to build consensus for the measure in both parties. “Federal regulations have not kept up with the fast-growing and ever-changing digital marketplace, resulting in outdated rules that could allow a single transaction to be taxed by multiple jurisdictions,” he said.

While Wyden and Thune plot their legislative strategy in the Senate, House Judiciary Chairman Robert W. Goodlatte of Virginia says he has begun putting together a plan for dealing with a number of issues concerning online commerce and electronic communications.

For example, Goodlatte said on July 25 that he planned to put out a list of principles in the near future for legislation dealing with the contentious issue of sales tax enforcement for online transactions.

He has raised concerns about a Senate-passed proposal to allow states to enforce sales taxes on out-of-state online vendors. The chairman said there was a need for simple procedures for online sales tax collection and safeguards to ensure that states do not hold out-of-state sellers to a more rigorous standard than in-state rivals.

Goodlatte has hinted that several proposals dealing with taxation on the Internet and on electronic devices like mobile and smart telephones could be handled together in hearings and moved on parallel tracks.